Question

Name key factors that can affect currency exchange rates?

Answer 1

Both economic and non-economic factors affect the countries exchange rate.

Inflation Rate- lower the inflation rate currency exchange value increases the purchasing power of the country becomes relatively cheaper.

Interest Rate- a change in the interest rates affected the exchange rate higher the interest rate capital will move to domestic countries and exchange rate value is increasing.

Current Account Deficit- excessive spending demand for the foreign currency for paying to import goods leads to current account deficit and domestic currency value falls.

Government Debt- The fear in the government debt default results selling the government open market by the foreign investors results in the exchange value of the domestic currency falls.

These are the major economic factors influence the exchange rate fluctuations.